Correlation Between Travelzoo and Direct Digital

Can any of the company-specific risk be diversified away by investing in both Travelzoo and Direct Digital at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Travelzoo and Direct Digital into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Travelzoo and Direct Digital Holdings, you can compare the effects of market volatilities on Travelzoo and Direct Digital and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Travelzoo with a short position of Direct Digital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Travelzoo and Direct Digital.

Diversification Opportunities for Travelzoo and Direct Digital

0.13

Correlation Coefficient

Travelzoo  Direct Digital

Average diversification

The 3 months correlation between Travelzoo and Direct is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Travelzoo and Direct Digital Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direct Digital Holdings and Travelzoo is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Travelzoo are associated (or correlated) with Direct Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direct Digital Holdings has no effect on the direction of Travelzoo i.e., Travelzoo and Direct Digital go up and down completely randomly.

Pair Corralation between Travelzoo and Direct Digital

Given the investment horizon of 90 days Travelzoo is expected to under-perform the Direct Digital. But the stock apears to be less risky and, when comparing its historical volatility, Travelzoo is 24.74 times less risky than Direct Digital. The stock trades about -0.04 of its potential returns per unit of risk. The Direct Digital Holdings is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  117.00  in Direct Digital Holdings on December 1, 2024 and sell it today you would lose (22.00) from holding Direct Digital Holdings or give up 18.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Travelzoo  vs.  Direct Digital Holdings

Travelzoo

Risk-Adjusted Performance

Very Weak

Over the last 90 days Travelzoo has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Direct Digital Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direct Digital Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, Direct Digital unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Travelzoo and Direct Digital

The main advantage of trading using opposite Travelzoo and Direct Digital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Travelzoo position performs unexpectedly, Direct Digital can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Direct Digital will offset losses from the drop in Direct Digital's long position.

The idea behind Travelzoo and Direct Digital Holdings pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.